Bilateral trade and shocks in political relations: Evidence from China and some of its major trading partners, 1990–2013

Yingxin Du, Jiandong Ju, Carlos Ramirez and Xi Yao

Journal of International Economics, 2017, vol. 108, issue C, 211-225

Abstract: An extensive number of studies investigate the effects of political relations on trade by estimating a gravity model using annual (or quarterly) data. We argue that the use of low-frequency data introduces an aggregation bias because the cycle of moderate political shocks is much shorter (measured in weeks). Using monthly data from 1990 through 2013 for China, we estimate a model of political relations and conclude that political shocks are short-lived. Narrative evidence from two case studies illustrates the transitory nature of these shocks. A VAR model shows that although political shocks influence exports to China, the effects largely vanish within two months. A comparison of the monthly- and annual-frequency gravity equation regressions illustrates the effects of temporal aggregation.

Keywords: Political relations; Bilateral trade; China; Temporal aggregation bias (search for similar items in EconPapers)
JEL-codes: F14 F51 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:108:y:2017:i:c:p:211-225

DOI: 10.1016/j.jinteco.2017.07.002

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